The Financial Market Authority’s annual KiwiSaver report shows a sharp increase in the amount of financial hardship withdrawals and savings suspension relative to last year.
During the year ended March 2023, about 54,300 New Zealanders started a savings suspension—bringing the total number to 121,000—while another 18,300 made withdrawals due to financial hardship.
John Horner, the regulator’s director of markets, investing, and reporting, said there was a fairly rigorous process for hardship withdrawals and he was happy with the current settings.
On the higher level of saving suspensions, he said the FMA would encourage providers to help members restart their contributions when the pause came to an end.
“It is not something we want to sit by and ignore, but we do have a limited impact on what changes can be made,” he said.
These numbers are still lower than during Covid and are only a small proportion of the total members in the scheme, but it demonstrates that some households are struggling to save.
The total balance of the KiwiSaver scheme has risen to be just short of $100 billion, but the bulk of this growth has come from member contributions with many markets in decline.
KiwiSaver has only made an annual loss four times in its history and always during a financial crisis such as in 2008, 2009 and 2020.
Lesser lump sums
While most members have continued contributing to the scheme during 2023, there have been fewer lump sum payments than in the previous year.
Only $832 million was paid into the scheme in one-off payments, down 63% from 2022.
The number of members who stopped contributing altogether increased almost 20% from last year to 121,000. This number may have been boosted by the reorganization of the default scheme which took place in December 2021.
Horner said the process of moving people into new default funds may have raised awareness of the scheme and unintentionally boosted the number of savings suspensions.
The process engaged the KiwiSaver members who were otherwise least engaged and possibly unaware they were setting aside a percentage of their paycheck each week.
“When you are making a positive decision … it brings into play all the options across the board, which could include deciding to take a pause,” he said.
Cost-of-living
The regulator said the increase in contribution suspensions could be attributed to both the current economic environment and the recent cyclone events.
Withdrawals for significant financial hardship increased by 37% to $145 million, similar to the level seen during 2020 and 2021 when Covid-19 caused high economic uncertainty.
There were 21,000 withdrawals during the worst year of the pandemic compared to 18,300 during 2023, at an average of $7,921 each.
While the percentage increase makes the number look big, the number of people making hardship withdrawals are just a tiny fraction of the 3.5 million members in the scheme.
The regulator published a survey in September last year which asked 2000 New Zealanders various questions about the KiwiSaver scheme.
“Among the insights were reasons roughly two-fifths of members choose not to contribute: unemployment or irregular income, or just not being able to afford it,” it said.
Members aged over 65 years withdrew $2.8 billion from the scheme, a 46.3% increase on last year which was likely driven by the much higher term deposit rates now on offer from banks.
Term deposits were mostly under 4% this time last year, but have climbed as high as 6%.
Withdrawals for first home purchases fell 35.6% from last year, with mortgage rates soaring and the real estate market freezing up.
Good news: lower fees
For the first time in KiwiSaver history, the total value of fees declined during 2023. The Financial Markets Authority has increased pressure on providers to lower fees in recent years.
The total value of fees declined 8.1% year-on-year, despite inflation and higher costs elsewhere in the economy.
The FMA said the fall was the combined effect of lower default fund fees, some providers removing membership fees, and others not earning the same level of performance fees as they may have in previous years.
Administration fees were at a record low of just $17.3 million, down 66% from the previous year and down 81.2% from their peak of $91.8m in 2019.
In July 2021, the regulator told the industry there was “little justification” for schemes to charge both a fixed administration fee and a base management fee.
Investment management fees accounted for the bulk of the overall fees charged at $626.3 million, which was just 2.5% less than last year’s all-time high of $642.3 million.
Horner said it was important that service levels didn’t fall with fees and that KiwiSaver members were still getting good value for money.
“That's the balance we’re striking, it's not all about fees. We want fees to be looked at alongside the value that's been provided to investors”.
37 Comments
All i can find is this so far
No mention of scrapping the govt contribution...one of the main benefits for those at the lower end of contributions
The Key National Party said little and when they got in the halved the govt's annual contribution and kicked the 1000 dollar kick starter into touch. (Dumb. Adding money at that time when asset prices were knocked down due to GFC 1.0 would have seen the funds far, far bigger now.)
So expect similar from the NACT this time around.
At an economic policy level, the NACT want the 95% to have as much disposable cash as possible so the top 5% can hoover it up. (The top 5% includes the banks as they can't keep growing their mortgage book and profits if people can't service larger mortgages.) If it is locked away in a retirement savings account the NACT can't deliver what it has promised to the leaches. Muldoon did the same. Terrible policy.
And on a side note - ACT want to stop contributions to the Super Fund. Nats have been silent on that. So expect the NACT to stop the Super Fund contributions - while continuing to suck out the tax - and the reason from National will be because ACT forced their hand. That will be total nonsense. Like Key's National government - it was the plan all along.
Agreed getfeeling...I imagine that as well as super contributions, there are a few other policies that the Nats are quiet on or happy to aquiesce on at coalition time...brightline might get scrapped completely,the mortgage interest deduction could be re-instated earlier...they will say they were trying to fight for the hard working,squeezed kiwi,but the price of a coalition was to give up some ground...unfortunately MMP has given the pollys a great way of promising or not promising whilst campaigning,then having the ability to let policies they secretly were happy with get through as part of the 'tough negotiations'...hence I feel you don't want to give the minors too many seats or it becomes the tail wagging the dog.
If they are smart, perhaps they'll use the PREFU as an excuse to maintain at least part of the interest deductibility rules. Bit of extra cash to splash, property investors are already voting for them or ACT, maybe attract a few centrists who don't want the country to fully commit to property investment as an economic goal.
Might I ask what term your mortgage was on? 20? 30 years? Less?
The banks should have been lending only on short terms of 20 years or less so that when interest rates 'normalised', mortgagees had options. (And wasn't it lovely for the banks to have the most used option that increased their revenues. i.e. lengthening the terms means so much more interest paid.)
25.
Personally I’ve found that I adjust back to baseline level of life satisfaction quite quickly when interest rates go both up and down. When at 2.25% the dinners out and new toys skyrocketed, but soon lost the novelty. Now that rates are back up, that has all gone but now settled back into the new norm. KiwiSaver contortions and a few other things will start again once the wife back at work.
KiwiSaver should be universally required with a contributions lift until about 16%. KS can replace superannuation with a phase in over 40 years.
People are poor in New Zealand, but they will be poorer without their KiwiSaver.
The Robertson method of fantasy borrowing cannot work for long. There is no big parent rescuer out there. New Zealand must grow up and return to living on what we have.
Obligations to KS should be viewed in the same manner as tax. IRD don't cut you some slack and say "Hey, times are tough. You don't have to pay tax next month.'
1. Stop pissing around with KS.
2. Ramp up contributions
3. Gains are tax-exempt.
4. Obligatory to be involved
5. NZ Super fund should have a KS arm.
KS is a good idea in principle . In reality you cannot trust it to be free from political interference from the left , to the detriment of people making the contributions.
Green Party are explicit in wanting to use KS for their political purposes ; one day , when the electoral chips fall right they will get their wish.
I am struggling to find any controversial KS policies from the Greens this time round - can you point me in the right direction? All I really see is the Nats wanting to let people raid their retirement funds to pay for rental deposits, and TOP making enrollment compulsory
Those policies are already in place :
https://www.greens.org.nz/green_party_welcomes_kiwisaver_fossil_fuel_il…
As to your reference to Nats - you cannot by definition "raid" you own retirement funds - it is YOUR money after all.
Using other people's retirement funds to promote your party policy goals - whatever they may be - is a different thing altogether. Pretty sure you get that .
Ah, I see. I note the policy only affects default providers, I expect you can find a broader index fund if you are proactive. I remember when this came up talking to 'normal people' without much idea of how this all works, they were quite unhappy to find they might be invested in weapons companies (and sometimes fossil fuel companies). The policy is probably not unpopular, although I do think it exploits people's lack of knowledge. For better or worse, ESG funds are very popular. I do hold some fossil fuel companies as they were a screaming bargain a couple of years ago, and like it or not they are a fact of life for now.
I would be more concerned if it mandated holdings in all funds, rather than just the default funds. Maybe it's a slippery slope.
Has anyone had any recent experience of making a hardship withdrawal? Ten years ago a friend was falling behind on the mortgage due to his employer intermittently reducing his work hours. He was turned down for a hardship withdrawal so consequently had to sell the house at the bottom of the market. Then the market took off so was never able to buy another one.
I've withdrawn twice. End of 2009 after having no work for almost 2 years, but still saddled with prior debt. Mid 2017 after constructive dismissal followed by 6 months of poisoned referee checks, and zero WINZ support.
Both times was difficult to do - had to provide a ton of information.
Re: your friend - the only 'asset' you can have for hardship is a cheap second hand car. If you have any cash or shares/property you can sell - you're not in hardship. And you're not allowed to use the draw-down to pay off debt, either - that is, your material day-to-day living should be materially improved.
Basically, if you need to have a strong case for a No Asset Procedure or Bankruptcy without it.
And relevant to this article: automatically puts you on a 5-year KS holiday - you have to opt-in to restart it early.
For me, 2009 withdrawal was piddly - just enough to pay for flights to Auckland where I could pick up minimum wage temp work (I hitch-hiked to the airport). 2017 was significantly better - we put it all into starting a business, which returned it 10-fold.
I was surprised and disappointed my friend was turned down. On the verge of losing his house there were no cash or assets to sell. It just made me even more convinced to do your own saving scheme rather than be in kiwisaver. After all, it wasn't a huge sum but it was his own money and he would be a lot more secure heading into retirement today if he could have used it to keep the house.
I mean, hardship is a relative term.
Keep in mind this is in a NZ context: your friend couldn't make their mortgage payments and ultimately lost their house - reduced hours but still employed.
In my case, winter 2009 I was homeless, sleeping in a $250 car with no heater in Christchurch. I'd been made redundant early in the GFC, and was unable to find work - constantly rejected, even for jobs I'd done before. Luckily I had no drug or mental health issues, but I just couldn't find work, and most of my benefit was going towards the lifestyle debts i'd taken on prior to the GFC.
2017, we were a young family with a newborn, also essentially homeless (had spent the time in a spare room, but the people we were staying with lost their house due to it being security on a business facing tough times, so we had to leave), and fell into an awkward gap where we did not qualify for UB because I had income protection insurance - but we belong to the group of people ANZ sold this insurance to that they never paid out on - so we had lived those 6 months prior to the hardship by slowly selling off belongings on trademe (exercise equipment sold early on, then tools, then furniture, etc. etc.).
In both scenarios, I (then we) were essentially down to our car and clothes when we made the application.
How did these things happen? I honestly don't know. I was a top student at high school - I won national-level prizes in mathematics and business - and simply never saw them coming. I probably made decisions along the way that contributed (I certainly took on more personal debt that I should of!). But the experiences have given me a keen empathy for those in similar circumstances.
[Just for the record, I'm now in the top 1% of earners, but not assets - it will take time to bring the assets up to match the income. I pay more tax than the average person earns, double the average rent, am paying off what remains of my debts at more than a minimum wage income, and split my remaining income into multiple savings accounts for future purposes/contingencies. I think I'm doing okay for the time being].
Visitor in from OZ yesterday. Says he has contributed little to his super fund and is the poorest person in his group. (a quite well off group)
A renter now in his sixties, he sees he can't retire. But NZ this month, USA later this year and Europe for their next summer, for holidays.
He has firmly closed his eyes to what is going to happen to him. Best financial option probably is to die early.
I work with numerous people like this. Late 50's, early 60's. Nominal superannuation savings and either renting or mortgaged to the hilt. Without exception they have annual overseas holidays, nice clothes, eat out frequently (and spend money on alcohol). Not to mention nice sunglasses (used as a euphemism for every other wasted dollar.). Earning $120k upwards and supposedly educated.
Acknowledge they won't retire at 65.
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